Learning in Equilibrium Models of Arbitration
This paper analyzes strategic communication in equilibrium models of conventional and final-offer interest arbitration. Both models emphasize the role of learning by the arbitrator from the parties offers about the state of the employment relationship, which is known to the parties but not to the arbitrator. In both models, the arbitrators equilibrium behavior is identical to the reduced-form decision rule typically assumed in the empirical literature. The paper thereby provides a structural interpretation for the existing empirical work. The paper also represents progress towards a complete theory of arbitration because it satisfies three conditions that will be required of any such theory. First, the models predictions match the existing empirical evidence. Second, the models describe equilibrium behavior. And third, the models are built on a common set of assumptions about preferences, information, and commitment. The paper therefore not only provides an equilibrium foundation for the intuition that the arbitrator might learn from the parties offers, but also uses the idea of learning to develop a unified analytical treatment of the two major forms of interest arbitration.
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- Crawford, Vincent P, 1982. "Compulsory Arbitration, Arbitral Risk and Negotiated Settlements: A Case Study in Bargaining under Imperfect Information," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 69-82, January.
- David E. Bloom, 1986.
"Empirical Models of Arbitrator Behavior Under Conventional Arbitration,"
NBER Working Papers
1841, National Bureau of Economic Research, Inc.
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- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
661465000000000387, David K. Levine.
- Grossman, Sanford J & Hart, Oliver D, 1986.
"The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration,"
Journal of Political Economy,
University of Chicago Press, vol. 94(4), pages 691-719, August.
- Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
- Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
- Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ehud Kalai & Robert W. Rosenthal, 1976. "Arbitration of Two-Party Disputes Under Ignorance," Discussion Papers 215, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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